JPM_logo_Eng
  • Funds

    Fund Explorer

    • Search our funds

    Capabilities

    • Fixed Income
    • Equities
    • Multi-Asset
    • Alternatives
    • ETF Capabilities

    Fund Information

    • Fund News and Announcements
    • Regulatory Updates
    • Capacity Management
  • Investment Themes
    • Sustainable investing
    • Emerging Markets
    • European Equities
    • Managing Volatility
    • Future of Fixed Income
    • Strategic Beta
    • Fixed income investing
  • Insights

    Market Insights

    • Guide to the Markets
    • On the Minds of Investors
    • The Weekly Brief
    • Investment Principles
    • Investment Outlook
    • Market Watch
    • Monthly Market Review
    • US Presidential Election 2020

    Portfolio Insights

    • Bond Bulletin
    • Monthly Strategy Report
    • Asset Allocation Views
    • Fixed Income Views
    • Equity Views
    • Factor Views
    • Emerging Market Debt Strategy
    • Long-Term Capital Market Assumptions
    • Global Alternatives Outlook
    • ETF Perspectives

    Webconferences

    • Webconferences
  • Library
  • About Us
  • Contact Us
Skip to main content
  • Role
  • Country
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Investment Outlook
  4. Investment outlook 2020: Late cycle investing

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Download
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Download Print




Investment outlook 2020:
Late cycle investing

Where are we in the cycle?


 

A view on asset allocation is often rooted in an assessment of where we are in the cycle. Early in the cycle, valuations are cheap, policy accommodative and the economy has ample spare capacity to grow. It’s often a good time to take risk. 

Conversely, late cycle is usually a good time to take chips off the table. When the economy is displaying signs of exuberance or overheating, higher interest rates usually put an end to the party. 

It’s proving much harder to navigate markets today based on an assessment of the cycle. The map is far from clear. Unemployment rates – often a key navigation tool – are near record lows in most parts of the developed world, suggesting the economy is very late cycle. However, there are very few other signs of classic late-cycle economic exuberance. Neither business nor consumer spending looks toppy. Indeed, the US consumer is looking remarkably prudent: the savings rate, which often falls sharply late in the cycle, is pretty high (see below). 

Household saving rates and inflation expectations

Household saving rates                                                Market-based inflation expectations
% of disposable income                                                %, 5y5y inflation swap

Source: (Left) BEA, Deutsche Bundesbank, Refinitv Datastream, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. 5y5y inflation swap represents the market’s expectation of five-year average inflation, starting in five years’ time. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Past performance is not a reliable indicator of current and future results. Data as of 25 November 2019.

And inflation is certainly not suggesting the global economy has reached its limits. In fact, central banks are preoccupied with the idea that inflation remains too low and may be getting stuck. Rather than trying to tame the expansion, the primary focus for central banks is how to gee it up. 

This makes it very hard to say confidently how much time is left on the economic clock. 

A resolution in the US-China trade conflict, a Brexit solution, and an easing of tensions in Hong Kong, Chile and Turkey could fuel a turnaround in business sentiment and a reacceleration in activity in 2020. Against a backdrop of muted inflation, interest rates could stay low. This would be a good environment for risk assets. 

But it is more likely, in our view, that geopolitical risk will linger. We think the trade conflict is unlikely to be fully resolved. Surveys suggest the US electorate believes the president is right to address unfair trade practices, while on certain areas of the disagreement – such as China’s state-led subsidies for its tech sector – there is seemingly no common ground. China believes in industrial policy, the US does not. 

The US administration does seem to appreciate that it needs to get the balance right between keeping the agenda alive and not damaging the US expansion, hence the recent more conciliatory tones. We’ll see in the coming months whether this more measured approach does much to boost corporate sentiment. Companies have been spooked, and are likely to remain reluctant to invest, which will limit the extent to which manufacturing bounces back through the course of 2020. This reluctance appears to be filtering into hiring intentions. 

If geopolitical tensions linger but don’t re-escalate, we should be facing a slowing rather than a stalling economy. But that is a big ‘if’. Our newly established health monitor (below chart) highlights the key indicators of US economic activity and will help us track the risks in the coming months. 

US economic health monitor

Percentile rank relative to historic data since 1990


Source: BLS, Conference Board, ISM, Refinitiv Datastream, J.P. Morgan Asset Management. Elevated recession risk flags are shown when the underlying indicator is at a level consistent with the onset of any of the past three US recessions, as determined by NBER. Transformations used for each of the indicators are: % change year on year for the Leading Economic Index and consumer confidence present situation, index level for Leading Credit Index, ISM non-manufacturing and ISM manufacturing new orders, and three-month moving average of monthly absolute change for non-farm payrolls. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 25 November 2019.

Download the full update

Related Articles

Central projections and risks

Explore potential macro and market scenarios following three projections: virus continuation, H2 robust recovery, or strong, synchronised global growth.

Read More

Rethinking the 60:40 portfolio

Explore how real estate, infrastructure and macro strategies can increase risk adjusted income and returns relative to traditional stock and bond portfolios.

Read More

Global momentum towards tackling climate change

With the US election result and growing Chinese intent, explore our projections of the impact of global efforts to tackle climate change on economic markets.

Read More

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not a reliable indicator of current and future results.
 

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.

J.P. Morgan Asset Management

  • Terms of use
  • Privacy policy
  • Cookie policy
  • Accessibility statement
  • Sitemap
  • Investment stewardship
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Copyright © 2021 JPMorgan Chase & Co., all rights reserved.


We use cookies to provide necessary site functionality and improve your online experience. To learn more about the cookies we use, view our Cookies Policy.

Close
ACCEPT
Read our cookie policy